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Shell wants to invest more in China downstream gas

July 30, 2012, 6:39 a.m. EDT

By Wayne Ma

–Shell hopes to invest in China gas, both upstream and downstream

–Shell, Qatar, CNPC Taizhou refinery approval process is advancing

–Foreign companies may work with private China firms in second shale round

BEIJING–Royal Dutch Shell PLC RDS.B +0.82% hopes to boost investment not only upstream but also in the downstream gas sector in China, as it wants to profit from every link in the gas supply chain, the head of the company’s China unit said Monday.

“I don’t want to just be the largest international oil company involved in LNG supply to China,” Lim Haw Kuang, Shell’s executive chairman in China, told Dow Jones Newswires. “I’d like to see investment throughout the whole value chain–from upstream to downstream–as far as gas is concerned.”

Shell is already heavily involved in upstream gas projects in China, including exploration for shale gas with PetroChina Co. PTR +1.33% in the Sichuan Basin and providing China with LNG from projects in Qatar and Australia.

However, the Anglo-Dutch company also has been quietly making inroads into China’s downstream gas sector. Shell will buy a stake in an LNG import terminal at Zhoushan, in eastern China’s Zhejiang province, a person familiar with the matter said earlier this year.

Mr. Lim said Shell wants to be involved in everything from natural-gas processing and marketing to building a receiving terminal for LNG cargoes. “LNG for transportation fuel is a potentially huge market,” he added. “It’s another area where Shell can complement China.”

Meanwhile, Shell, and its partners Qatar Petroleum International and PetroChina’s parent company China National Petroleum Corp., are moving ahead with a planned refinery and petrochemical complex in the eastern city of Taizhou, Mr. Lim said. The project passed an administrative hurdle in May that will allow it to continue with its feasibility study, he said. The project is now eligible to apply for further government reviews and approvals.

CNPC will own 51% of the Taizhou project, while Qatar and Shell will each take a 24.5% stake, he said. Once it is completed, Shell and Qatar will provide feedstock to the integrated refinery, petrochemical and marketing project, he added.

Imported condensate and raw materials will be used to produce ethylene and other petrochemical products, CNPC said after an initial framework agreement was reached in October 2011.

Private Chinese companies may ask to work with Shell and other foreign oil companies in the second round of bidding later this year to exploit China’s shale gas reserves. Only Chinese state-owned companies were allocated shale-gas blocks in the first round in June 2011.

“I won’t be surprised if these [private] companies are encouraged to work with foreign companies to fast track or accelerate potential learning [of shale gas development],” Mr. Lim said.

Although analysts have been skeptical of China’s ability to achieve a target of producing between 60 billion and 100 billion cubic meters of shale gas by 2020, up from virtually zero now, Mr. Lim said that there wasn’t any reason why China couldn’t achieve its goal.

“It’s challenging, but I think there’s no reason why [China] can’t do it once they have the right policy framework and acquire the relevant skills quickly–with suitable policy support and incentives,” he said.

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